Lechleiter Calling For Immigration Changes

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The chief executive officer of Eli Lilly and Co. (NYSE: LLY) is calling on the U.S. government to issue more work visas and streamline the green card process for highly-skilled immigrant workers. John Lechleiter included the request in a keynote speech at the Information Technology and Innovation Foundation Conference in Washington, D.C.

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Lechleiter will make the case that more streamlined immigration regulations will stop talented people trained in the U.S. from going to other countries to start businesses that compete with American companies.

He will also call for sustained government funding of basic research and a society-wide effort to develop new generations of Americans with knowledge in the science, technology, engineering and math fields.

Lechleiter believes great scientists and more breakthrough ideas would emerge from a larger talent pool.

June 23, 2011

Text of Lilly CEO John Lechleiter's Speech

Good afternoon.

It’s a great pleasure to be here today, and a privilege to speak to the Information Technology and Innovation Foundation on your 5th anniversary.

Every American enterprise that relies on ideas for its success – and that includes just about everybody – owes you thanks for your strong voice on the importance of innovation to America’s competitiveness and economic health. Few issues are as critical for ensuring that the 21st century is another American Century … so I congratulate you on five years of important – and impressive – work!

It’s also fitting that today’s discussion is held at the Newseum. The free flow of ideas has been an essential part of our nation’s success … and it is also an essential part of innovation.

The Newseum once asked a group of journalists and scholars to select the top 100 stories of the 20th Century.

As you would imagine, D-Day … the New Deal … Watergate … and the Kennedy assassination all made the list.

But it’s interesting that nearly one-third of the stories on the list are about innovation – the vast majority of them, American innovation.

Men walking on the moon and the Wright Brothers’ first flight were numbers 2 and 4 … Ford’s Model T was number 17 … and the introduction of personal computers, 31.

Medical innovation was also well-represented – with the discoveries of penicillin … the polio vaccine … and the structure of DNA all in the top 25.

What I want to discuss today is what we must do as a nation to ensure that … when journalists and scholars pick the top 100 stories of this century … the number of medical innovations making the list will be at least as robust.

Though a big part of my focus is innovation in medicine – and more specifically, biopharmaceuticals – my broader issue is one of great urgency for all our citizens: the danger that we are losing what has been America’s greatest competitive advantage: our genius for innovation.

Let me begin with a simple axiom: America is the inventing nation.

Innovation is part of this country’s DNA – all the way back to our founders, whose ranks included inventors like Benjamin Franklin and Thomas Jefferson … and who set about inventing a new kind of nation.

Americans explored every frontier – producing inventions to help conquer time and space: wagon trains and steam locomotives gave way to cars, airplanes, even rockets … as well as movies and television … telecommunications and computers.

Along with exploring geographical frontiers, we also began mapping human biology, producing medicines and medical technology that conquered many diseases … and alleviated others – extending life spans, enhancing health, and creating new industries along the way.

From this pioneering spirit came a steady stream of innovators: Thomas Edison … Henry Ford … the Wright Brothers … the Mercks, Upjohns, Pfizers and Lillys … continuing with people like Thomas Watson … Steve Jobs … and Bill Gates.

These innovators emerged not by chance but from the characteristics that define our nation:

• We have always welcomed a diverse group of dreamers from across the globe – and offered them opportunities to advance by virtue of their ideas and hard work.

• We believe in the free flow of ideas – in fact, it’s such a bedrock concept that it’s enshrined in our Constitution!

• We value education … and built a public education system that has paid tremendous dividends and was once the envy of the world.

• We have historically had a good business climate – and a system that provides incentives for and rewards innovation.

• And we never lost that frontier spirit that looks at obstacles as challenges to be overcome.

Indeed, it is the innovation that sprang from these qualities – above all else – that made the 20th century the American century – marked by a steady growth in jobs … rising standards of living … and longer, healthier lives.

And speaking of longer, healthier lives, let’s look more closely at just one area of innovation – advances in medicine.

While individual breakthroughs made the headlines … I believe their cumulative impact in under-appreciated.

In fact, medical innovation in the 20th century alone transformed the basic expectations of human life that had prevailed since the dawn of civilization:

• More and more death sentences were lifted … think of antibiotics for infections, vaccines for conditions such as polio, and more effective treatments for a growing number of cancers. In 1975, the five-year survival rate for all cancers together was 50 percent – a coin toss. Today, the five-year survival rate is nearly 70 percent.• Other dread diseases became manageable chronic conditions … think of diabetes and heart disease. The death rate from coronary heart disease in the U.S. has declined by about two-thirds since it peaked in 1968. More than one million additional Americans would die of heart disease or stroke each year if the death rates today were what they were 40 years ago.• And countless maladies barely understood or described at the dawn of the 20th century … think of severe sepsis, osteoporosis, schizophrenia, and auto-immune disorders … could be brought to heel by medical interventions. Since 1995, thanks in large part to antiretroviral medicines, deaths from HIV/AIDs have dropped more than 70 percent.

I’m proud to note that Lilly was a pioneer in several of these pivotal breakthroughs, with insulin, antibiotics, the polio vaccine, and more.

The cumulative impact of the medical innovation of the past century is nothing short of mind-boggling.

In 1900, the average American life expectancy was 47. Today, it’s 78. That’s an increase of 66 percent over 110 years – unprecedented in human history.

If you’re older than 50, like me – (I admit) – we’ve added nearly a decade to lifespans just in our lifetimes! Seen another way – each day of our lives, every 24 hours, we’ve gained an additional five hours! Although it’s still not enough hours to clear my email.

A key reason why we’ve gained this extra decade is innovation. If fact, an independent study found that just one area of medical innovation – the launches of new medicines – accounted for 40 percent of the increase in life expectancy during the 1980s and 1990s.

In other words – in the study – for every year that life expectancy has increased, five months can be attributed to the availability of new medicines.

If the sole impact of these innovations were additional decades of life and health, we’d be hard-pressed to find their equals.

But the economic payback from these gains is also difficult to overstate. The payback is years of productive work, economic value added, consumer spending, and tax dollars paid – which together outweigh the costs of treatment overwhelmingly … even if you resist putting a number on the intrinsic value of being alive!

And then there’s the impact on the broader economy.

More than 3 million U.S. jobs are supported by the biopharmaceutical industry – 90,000 of them in my home state of Indiana.

While our state has seen a steady decline in heavy manufacturing jobs … the losses have been softened by the life sciences sector, which has grown 21 percent over the last eight years, according to a report being issued today by BioCrossroads – Indiana’s public-private initiative that focuses on the life sciences. The value of Indiana’s life sciences exports during this period nearly tripled to $7.4 billion – ranking us third among all 50 states, behind only California and Texas.

Today, the U.S. is the undisputed leader in medical advances. Our biopharmaceutical sector is the envy of the world. U.S. inventors and companies:

• hold the intellectual property rights to a majority of new medicines;• they account for more than 80 percent of the world’s biotech R&D;• and they’re testing more potential medicines in clinical trials than the rest of the world combined.

This wasn’t always the case. As recently as 1990, the pharmaceutical industry spent 50 percent more on research in Europe than in the U.S. By 2001, that was reversed, with the industry spending 40 percent more in the U.S. And we’ve never looked back.

But – if I’m allowed to edit Satchel Paige – it’s time we did look back … because something is definitely gaining on us.

In fact, despite all this progress … despite all these gains … the evidence is mounting that we are facing today nothing short of an innovation crisis in America’s life-sciences sector:

• To begin with, the science is difficult, incredibly complex … and staggeringly expensive. Over the past 25 years, the cost to develop one new drug has risen from $100 million to some $1.3 billion – in part because finding the next breakthroughs to treat stubborn diseases like diabetes, cancer and Alzheimer’s disease is among the most challenging of human endeavors. • At the same time, the number of new molecular entities approved by the FDA over the past five years – 95 – is lower than in any other five-year period since I started working in the industry in the late 1970s. • And this comes in the midst of a six-year period when products that comprise some 40 percent of the total U.S. retail pharmaceutical market lose patent protection. This is great news for consumers, who will gain access to more generic drugs – medicines, by the way, that exist solely because of our original research. But this translates into about $100 billion less annual revenue for the industry collectively – which means we’ll have proportionately less to invest in discovering and developing the next generation of innovative medicines the world desperately needs. • As a result of these forces, in the large-cap pharma industry, we’ve seen a wave of defensive consolidations that has left a dwindling number of entities capable of taking an idea … a discovery … and turning it into a medicine approved for patients. Large pharmaceutical companies and a select group of large biotech firms are the only entities that can do this work – period … and I believe that a further reduction of this small community is not necessarily a good thing. Yet, the fact is, our valuations – in terms of price/earnings multiples – lag way behind the S&P.• The smaller biotech firms in the U.S. have also seen their cash dry up as investors clearly see the tremendous risks … with less upside than ever before.

At this moment of unprecedented pressure on our home-grown biopharmaceutical companies, the rest of the world is not standing still. The U.S. is not the only country looking to the life sciences to drive economic growth. The very qualities that brought much of the world’s research capacity to our shores could just as easily attract that work to Asia, or elsewhere.

For example, the number of global pharmaceutical patent applications that named one inventor or more located in India or China has risen fourfold since 1995.

We’ve also been hearing for years how countries like India and China are producing more scientists and engineers than we are. Those potential innovators see improving prospects in their own countries and more restrictive U.S. immigration policies.

So now, instead of coming here, or staying here and contributing to our economy, many of the world’s best and brightest are – as a Washington Post headline put it – “Taking their Brains and Going Home.”

While I’ve been focusing on the industry I know best … the threat to America’s leadership in innovation should concern every one of us in this room.

It’s not just out of politeness that I’ve been quoting a comprehensive study published by ITIF last year that ranked the U.S. sixth among the top 40 industrialized nations in what they call innovative competitiveness. Not number 1, but not a disaster by any means.

However, the same study also measured what ITIF calls “the rate of change in innovation capacity” over the past decade. These are things countries are doing to make themselves more conducive to innovation in the future. They looked at 16 different metrics – things like higher education … public and private investment in R&D … corporate tax rates, and the like. On this list, the U.S. ranked dead last – DEAD LAST – 40th out of 40!

I understand that ITIF is about to publish an updated report that examines an even larger number of countries. I have not seen the numbers but I understand that anyone looking for a dramatic turnaround will be sorely disappointed.

What will it take to preserve our lead in innovation – including medical innovation?

Let me be clear that when it comes to sustaining innovation, the burden remains on research-based companies like Lilly – as it should. Businesses like ours that live or die by health care innovation in the U.S. ask only that we be allowed to continue doing just that: proving the value of what we’ve developed … and succeeding or failing in the marketplace.

The one thing that industry has a right to ask of public policy … in my view … is to help preserve the environment in which innovation is even possible – that supportive business climate I referred to earlier.

The pursuit of innovation in any field is a very difficult, very high-risk venture. If innovation is to take root and grow, it requires a combination of elements I like to describe as an “ecosystem” – and I believe this is a good analogy.

The first element of this ecosystem is an atmosphere in which innovation can thrive … a society that understands and appreciates scientific inquiry … and free markets where innovators can expect to be rewarded for the risks they take and the value they create.

The second element … the nutrients for innovation … come in the form of monetary investments. For investors to take the risks associated with innovation, they must have a fair shot at earning a return if the work is indeed successful. That requires solid protection of intellectual property … and a fair, rigorous, and transparent system of regulation.

The third and most important element … the seeds of innovation … equate to talented people and their ideas. Ultimately, innovation grows from the human mind. We need to remind ourselves that human beings, with their talent and energy, their creativity and insights, are a priceless resource – but a resource that is woefully underdeveloped in this country, even as we congratulate ourselves for maintaining – still – the world’s largest knowledge economy.

In the remainder of my speech, I want to briefly call attention to five policies necessary to allow innovation to take root and grow.

The first is science and math education – especially at the high school level.

• In international comparisons, American 15-year-olds perform poorly in science and math literacy. When compared with students in 57 countries around the world, U.S. 15-year-olds rank 29th in science literacy and 35th in math literacy.• And last year, the ACT admissions test reported that only about a quarter of 2009 high school graduates taking the test were ready for college-level biology.

Folks, these kids are the future scientists we’ll need to build the next generation cars and power plants and semiconductors … and to discover new treatments and cures for our toughest medical problems. But, not surprisingly, the number of U.S. students pursuing bachelor’s degrees in science, technology, engineering and math – the so-called “STEM” fields – is far below what will be needed to meet future demand.

Broad understanding of math and science is essential, first of all, so that young people across our society have an opportunity to participate in the high-tech economy of the future. Further, as the technology sector grows … the Baby Boom generation retires … and shortages emerge in particular fields … we will need a large cohort with basic scientific skills to prepare for these jobs.

Meeting these needs will require continued significant attention to improving K-12 science and math education across our country, and I believe that both the public and private sectors must be involved.

Ultimately, what we need is not an intensive program to produce an elite cadre of brilliant scientists, but a common effort as a society to develop whole new generations of Americans with knowledge and skills in math and science … a large pool from which great scientists and breakthrough ideas will emerge.

Second, we must return to immigration policy that allows and encourages top scientists to choose to work in the U.S.

Breakthroughs in any field require superlative talent. In pharmaceutical research, only one molecule in 10,000 becomes an approved medicine … so we need the kind of scientist who might come up with the pivotal insight that makes a difference. Today, many of the top candidates don’t start out as U.S. citizens or even permanent residents. This includes candidates emerging from the best U.S. graduate schools.

Today, it takes an average of five years for the Lilly employees we sponsor for residency status to obtain a green card.

This uncertainty and frustration is driving away prospective candidates before we ever see them. With growing opportunities in their own countries … the last thing we should be doing is pushing them away.

Whether or not Congress takes up comprehensive immigration reform, we must fix the policies that are driving away talented people who want to live here and contribute. This does not require drastic changes … just a sensible increase in visas for these highly skilled immigrants and a shorter, simpler process to get a green card. In fact, I wholehearted agree with a business associate who stated in December: “If you receive an advanced degree in Science or Engineering in this country, you should find a Green Card stapled to your diploma!”

To those who argue that these immigrants are taking jobs from Americans, I say baloney! The fact is, they’re contributing to strong businesses that help create jobs right here in the U.S. According to the Wall Street Journal, between 1990 and 2007, 25 percent of U.S. companies started with venture capital had an immigrant founder.

And it surely beats the alternative: talented people trained in the U.S. returning to their native country or going elsewhere to start or help a foreign firm to compete against us. You want a job-killer? That’s a job killer.

Third, we need strong, sustained government funding of basic research.

Academic and government research has historically operated synergistically with the private sector, often supplying the raw material and insights … which industry works to translate, develop and commercialize. Yet, over the past 30 years, while federal spending on payments for individuals has doubled … federal funding for non-defense physical capital, R&D, education and training has been cut in half.

To counter that trend, the stimulus bill included substantial additional funding for the National Institutes of Health, the National Science Foundation, and other agencies involved in health research. And President Obama has outlined the goal to increase R&D investment to 3 percent of the Federal budget.

I believe that investment will be most effective if a commensurate share goes to basic research – which I distinguish from large, expensive, and often inconclusive investments in head-to-head drug effectiveness studies. And it can’t be just one-and-done. Because medical research is such a long-term enterprise, the funding must be consistent; predictable; and sustained.

As a CEO facing major patent expiries, I know too well the importance of facing up to budget realities. But if we’re to protect and advance innovation, sometimes we must invest in the short term for long-term benefits. For example, it will cost our nation billions of dollars to find effective treatments for Alzheimer’s disease … but what we will save is exponentially greater.

What’s required, again, is not some new “Manhattan Project” but rather a long-term commitment. Such a commitment is necessary to attract more outstanding scientists to basic research and keep them engaged in productive work throughout their careers, whether in academia, government laboratories, or the private sector.

Fourth, we need a tax structure that encourages – rather than undermines – innovation and commercialization in the United States.

Specifically, we need a business tax system that levels the playing field for America’s worldwide companies and enables them to compete and win in the global marketplace.

Quite simply, our corporate tax rate is too high, and we should not tax the foreign earnings of U.S. global companies. Our country must quickly embrace a corporate tax rate in the 20 to 25 percent range … as well as a globally competitive territorial system for the taxation of foreign earnings – in other words, the same tax rates and policies most of the rest of the world has already adopted!

And, as we move to a globally-competitive tax system …we should seriously consider temporary repatriation of foreign earnings as a transitional measure to inject cash that is currently outside the U.S. into the U.S. … where it can be deployed for the benefit of American workers and used to fund other critical public needs!

In addition, we must recommit our country to a globally competitive innovation incentive tax regime.

Though the U.S. was one of the first countries to offer an R&D tax credit, we have not kept pace with other nations. Other countries are making public investments to attract private capital and using tax policies to encourage local investment in R&D and related job growth.

In this regard, we need to make the federal R&D tax credit permanent and raise it to levels that are globally competitive … as well as consider other tools to encourage U.S. innovation.

Lastly, in these deficit-driven times, we must strongly resist the temptation to impose international tax revenue raisers on America’s worldwide companies. These revenue raisers will hurt the U.S. economy … deplete U.S. jobs … and further exacerbate a corporate tax system that is out of step with the rest of the world.

In summary, we need a corporate tax system like the rest of the world – one that encourages, rather than discourages, investment in the United States.

Fifth and finally – and this area of policy applies mainly to my industry – we need a modernized regulatory system that is more timely, more consistent, and more predictable.

The current regulatory process is asymmetrical. There is much greater pressure on regulators to identify and avoid the risks of new medicines than to balance those risks against the potential benefits to patients.

I believe the problem lies not in the regulators, but in the system itself, which creates incentives to put off decisions and to err on the side of avoiding risk … even if some patients might accept that risk in return for the potential benefits.

As I’ve said in other forums, I believe that regulators – and the regulatory process – must bring to bear a more systematic approach that documents the basis for any such decision … the data used, the rationale, the standards, and the values that regulators applied in reaching the decision. The FDA recognizes this need … as well as the need for systematic tools for benefit/risk assessment.

Such an approach would allow regulators to demonstrate why a decision was reasonable even when viewed in the light of subsequent data. Just as important, I believe that such an approach would result in regulatory decisions that are more predictable, more balanced, clearer, and more timely.

Regulators and industry … and, most importantly, patients … have a common interest in a systematic, transparent decision-making framework to support a robust benefit/risk assessment. And we have an opportunity to implement such a framework here in the U.S. in the reauthorization of PDUFA – the Prescription Drug User Fee Act. The law comes up for reauthorization in 2012, but our industry and others are already in discussions with the FDA. I’m hopeful that through this process we can achieve a real victory for innovation … and for patients.

I’ve been talking today about what America’s genius for innovation has meant to our citizens – more jobs, higher standards of living, and longer, healthier lives.

Clearly, it’s impossible to predict the full range of benefits future generations could enjoy from today’s innovation.

But in the field of medicine … when I think of the incredible advances over the past century … I’m convinced that what might seem unimaginable today will be commonplace tomorrow:

• treatments that transform cancer into a chronic disease, with survival times measured in decades rather than months …• effective treatments for malaria, TB, and other diseases affecting tens of millions in the developing world …• breakthroughs that will save millions from the devastation of Alzheimer’s disease …• cardiovascular repair and prevention of heart disease …• replacement organs …• and – ultimately – additional decades for people to enjoy precious life and enhanced vitality – not just additional years, but additional healthy and productive years.

And, along with the profound benefits in and of themselves, we’ll see exciting, new opportunities … a rising standard of living … and a reinvigorated American economy.

However, success is not guaranteed.

You will still hear some people say we have all the innovation we need. Or that, in this difficult economic climate, we just can’t afford it.

I hope when you hear these arguments, you’ll remember what I’ve talked about today and conclude – as we at Lilly have – that innovation is not the problem. Innovation is the solution – the essential key to ensuring that, when people look back at the 21st century, they will say that it truly was the second American century.